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Improving Access to Basic Financial Services and Agricultural Input and Output Markets by Smallholder Farmers in Zimbabwe

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Beyond Financial ServicesClick on the image to download the brochure
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CARE International’s programme in rural Zimbabwe promotes access to basic financial services combined with support to farmers for accessing agricultural input and output markets. Findings provide evidence that Savings Groups enhance the capacity of small-holder farmers to purchase agricultural inputs. However, the evidence is less clear that linking Savings Groups to local agro-dealers through the Agribusiness Entrepreneur Network and Training (AGENT) Project resulted in a direct increase in the purchase of agricultural inputs.

Agriculture has been and remains a fundamental part of Zimbabwe’s economy; however, due to structural changes in the sector, the economic crisis of the past decade and recent droughts, Zimbabwe’s agricultural sector has declined precipitously and the country is no longer food self-sufficient. At the height of the economic crisis in 2008, large-scale input providers ceased operation and many farmers stopped production entirely. Donors and NGOs have responded with years of subsidised and free inputs to targeted farmers, but sustainable access remains a challenge.

Hyperinflation and the subsequent dollarization of the economy of 2009 wiped out the assets of many financial institutions and their clients. The collapse of the formal productive sectors of the economy led to a growing informal sector that in turn reduced demand for formal financial services as poor, small-holder farmers reverted to barter trade and saving in physical assets. Furthermore, in 2006, 70 percent of the economically active population in Zimbabwe reported they did not have access to formal financial services.

SGs as a Platform to Improve Access to Agricultural Markets
In 1995, CARE Zimbabwe developed the AGENT Project to improve the food and income security of smallholder farmers by increasing access to agricultural input and output markets. The AGENT Project aimed to develop sustainable linkages between village-based suppliers of agricultural inputs (agro-dealers), farmers and other market actors. The Project also offered training to new agro-dealers to improve their ability to identify good seed varieties. In addition to training in business management (subjects such as customer care, credit, stock management and record keeping), they received hands-on training in market surveying, buying and stocking. In 1998, CARE Zimbabwe launched the Internal Savings and Lending (ISAL) project, using a community-based SG approach for the delivery of basic financial services. Then in 2004, CARE Zimbabwe introduced the AGENT Project to areas of the ISAL programme while the ISAL methodology was introduced to the farmer groups established under the AGENT Project.

Value Added
The ISAL structure provided CARE Zimbabwe with an effective social mobilisation tool to reach very poor and remote communities organised into largely cohesive ISAL groups. The linkages with local agro-dealers have enabled ISAL members to purchase agro-inputs more effectively, including at a lower cost, in greater quantities, and of more appropriate seed varieties. Importantly, the ISAL programme has provided beneficiaries with the means to make these essential purchases while alleviating the need to sell productive assets at the onset of each planting season. In turn, some agro-dealers use the ISAL groups as a marketing platform and benefit from the groups’ improved purchasing power.

However, the study found that most linkages between ISAL groups and agro-dealers were developed by ISAL groups directly. A primary reason for of each meeting. In 2007, as the inflation rate reached the hundreds of millions, even the cash-based groups began to share-out in physical assets purchased within moments of the periodic share-out. This habit persists to 2010, when most ISAL groups prefer to make periodic distributions in physical assets rather than cash.

The core element of the AGENT Project, the agro-dealer, is the most demonstrably sustainable. Prior to the most severe portion of the economic crisis, the wholesaling company working with the agro-dealers continued to provide finance for agricultural inputs to approximately 90 percent of the agro-dealers who were trained by CARE. Business relationships that were built between CARE and remote rural retailers are beginning to re-emerge and are demonstrating impressive resilience. A strong factor supporting this re-emergence is the dual provision by wholesalers of both grocery and agricultural inputs. For agro-dealers, product diversification is a sound business practice that enabled them to survive when wholesalers pulled out of agricultural input supply during the economic meltdown.

Efficiency Gains, Leverage and Risks
Economies of scale and scope have been realised since CARE Zimbabwe’s decision to enhance programme integration. Efficiency gains were created with respect to logistics and information management because the ISAL and AGENT projects benefited from the social infrastructure established by each other. However, the distribution of large volumes of nearly free food aid and agricultural inputs through agro-dealers competed with commercial shelf-space and displaced the market orientation of the agro-dealers.

Superimposing ISAL structures and AGENT activities upon one another carries the risk that the groups formed for one purpose may lack the capacity and social cohesion required for additional activities. CARE recognises these risks and emphasises the importance of voluntary participation in both projects; discussions with dropouts revealed that long-standing members of existing groups are sometimes pressured to leave once an activity is added for which they are not suited, thus excluding individuals and disrupting previously solid organisational structures.

Lessons Learnt
SGs serve as an invaluable safety net for the members of other local institutions, such as farmer groups, by making available credit, grants and periodic share-outs of cash and physical assets to their common membership. In turn, participation of ISAL members in the AGENT model has provided access to inputs at reduced costs and more lucrative output marketing arrangements that have improved their savings capacity and the financial health of ISAL groups in the community.

However, the direct linkage of ISAL groups to the services of the AGENT model appears to be weak, and there is insufficient evidence to demonstrate that the linkage improves access to and participation in agricultural input and output markets for the savings group itself. While ISAL groups do sometimes engage in joint productive activities, they tend to be more consumptionoriented and socially-focused. In fact, ISAL groups in Zimbabwe were less likely to purchase inputs in bulk from agro-dealers as compared to gardening groups and other community-based organisations; they were more likely to purchase consumer items such as blankets and kitchenware. Thus, perhaps crop-specific producer groups are a more logical supply point for agrodealers than SGs.

This brief is based on research and case study sponsored by the Aga Khan Foundation’s Savings Groups Learning Initiative, written by Ben Fowler and David Panetta in July 2010. View the full case study

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